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Finksburg, Maryland 21048

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8.4Nicholas Bernard Proy
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Main Page >> Practice Areas >> Wills, Trusts and Estate Planning >> Irrevocable Trusts

 

Irrevocable Trusts

 

Before we get into the nuts and bolts of irrevocable trusts, we need to first understand the terminology:

 

Trust: A legal document that describes the processes and procedures where a settlor or grantor transfers his or her assets to a trustee, who manages the assets on behalf of a beneficiary. Trusts can be either revocable/living trusts or irrevocable trusts. Here, we are only discussing irrevocable trusts.

 

Settlor or Grantor: The individual who establishes the trust or transfers property to a trust.

 

Trustee: A person or corporation who manages a trust for the benefit of a third person, the beneficiary, pursuant to the terms of the trust.

 

Beneficiary: A person who receives assets from a trust.

 

An irrevocable trust is an estate planning and asset protection device used so that your assets are placed into the trust for the beneficiary's use and benefit. Unlike a revocable trust or living trust, an irrevocable trust cannot be amended, changed or altered after setting up the trust.

 

By giving up the ability to amend, change or alter the irrevocable trust, you must be certain that the irrevocable trust is set up in a way that makes sense not only in the present time, but also well into the future.

 

Irrevocable trusts are most commonly used for life insurance and special needs circumstances.

 

Advantages to an Irrevocable Trust:

(1) Assets held by an irrevocable trust are generally not subject to the grantor's and beneficiary's creditors' claims, including nursing homes. This provides significant asset protection advantages to both the grantor and the beneficiary.

 

(2) A trust is administered privately, outside of the probate process. This means that your assets are not filed at the courthouse and no one from the public can view the assets you left to your beneficiaries.

 

(3) Irrevocable trusts can provide tax advantages, especially with life insurance.

 

Disadvantages to an Irrevocable Trust:

(1) A will is still necessary. A pour over will is still required if you have an irrevocable trust. This is required for two reasons: (i) a trust cannot appoint a guardian for minor children like a will and (ii) anything not owned by the trust is owned by the grantor and will be subject to probate. A trust is not a replacement or substitute for a will.

 

(2) The legal costs associated with establishing an irrevocable trust or living trust are often substantially higher than having only a will.

 

(3) Proper procedures, such as Crummey Letters, trust accounting, and handing of the irrevocable trust's assets must be followed, but are often disregarded, which will pose numerous legal issues.

 

(4) Irrevocable life insurance trusts cannot be altered, amended or changed. This includes changing the beneficiaries or the trustees.

 

 

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